China May Lack Enough Edible Oil Stocks To Curb Prices -Report

China's grain authorities Wednesday announced an unusual state auction of edible oils, without disclosing details including the date, oil types and offer volumes. The authorities said the intent was to ensure supply and stabilize prices.

Sharply rising prices have been of growing concern to the government, and Wednesday's announcement marked the addition of one more food category to a range of agricultural commodities that are testing the ability of China's vaunted agricultural reserves to defend the country's market stability and food security.

Citing unnamed industry insiders, the Securities Times said the edible oils to be auctioned were likely soyoil and rapeseed oil.

However, the newspaper said, private-sector estimates place national reserves of such vegetable oils far short of domestic demand, limiting the extent to which the authorities will be able to use auctions to stabilize the market.

China does not officially disclose its agriculture reserve levels.

The Securities Times report was also carried Thursday on the website of the China Grains Network, the research arm of state grains stockpiler China Grain Reserves Corp., also called Sinograin Corp.

"The dimensions of such an auction are likely to be limited, which makes it hard to alter the fundamental market situation," the newspaper said.

The auction, China's first this year, is more likely aimed at clearing old edible-oil stocks dating from 2008, as the shelf life of such stocks are near expiry and warehouses are running out of space, it said.

Though it didn't venture to identify likely offer volumes, crucial for gauging the strength of the government's ability to control prices, the Times suggested that state reserves of such edible oils were too small to influence the market.

China's rapeseed oil reserves were around 1.4 million tons, the newspaper said. If true, such reserves would be about a third of domestic rapeseed oil consumption of around 4.5 million a year, according to September data by the state-backed think tank China National Grains and Oils Information Center.

The newspaper also said that "a conservative estimate of state soyoil reserves is 1.4 million tons or more, a small percentage of domestic demand." The CNGOIC estimated current Chinese soyoil consumption at around 10 million tons a year.

The Securities Times said market-supportive rapeseed purchases, which have all but stopped this year, reached 5.08 million tons.

Among the state-linked buyers were Sinograin with 2.3 million tons, Cofco Ltd. with 600,000 tons, Chinatex Corp. with 180,000 tons, and local grain agencies with 1 million tons, the newspaper said. It didn't identify the buyer or buyers of the other 1 million tons.

Dwindling global stockpiles and surging domestic demand have spurred sharp gains in food prices in China and abroad this year, but given the size of available reserves, edible oil prices are expected to keep rising, it said.

The most-active palm oil futures on the Dalian Commodity Exchange have risen by 18% and soyoil futures by 15% in the last three months, outstripping a 9% increase in bellwether soybean futures.

The state has also been auctioning wheat, corn and rice weekly to hold down prices.